Two divisions of JPMorgan Chase have agreed to pay over $151 million in combined penalties to resolve regulatory charges of misconduct, including issuing misleading disclosures and failing to prioritize customers’ best interests.
Announced by the Securities and Exchange Commission (SEC) on Oct. 31, the settlement covers five separate enforcement actions involving J.P. Morgan Securities, the bank’s brokerage unit, and J.P. Morgan Investment Management, which oversees mutual funds and managed accounts.
“JPMorgan’s conduct across multiple business lines violated laws meant to protect investors from risks like self-dealing and conflicts of interest,” said Sanjay Wadhwa, acting director of the SEC’s Division of Enforcement. “Today’s settlements, including multiple self-reports and substantial payments to affected investors, hold JPMorgan accountable for its regulatory shortcomings.”
JPMorgan resolved these issues without admitting or denying the SEC’s findings. A JPMorgan spokesperson stated, “We are pleased to resolve these matters. JPMorgan Chase is committed to upholding the highest standards in client service. When issues are identified, we address them and work with regulators to resolve any concerns.”
The SEC investigation found that J.P. Morgan Securities recommended certain mutual funds to brokerage clients, despite similar, lower-cost ETFs being available. Employees failed to consider these cost differences, leading approximately 10,500 customers to purchase mutual fund clones between June 2020 and July 2022 based on these recommendations.
Although these actions violated Regulation Best Interest, the SEC did not impose a civil penalty in this instance due to the brokerage unit’s prompt self-reporting and reimbursement of $15.2 million to affected customers.
Additionally, the SEC noted that J.P. Morgan Securities failed to fully disclose financial incentives its advisors earned when recommending either in-house or third-party portfolio management programs. Advisors had incentives to promote the bank’s own program over similar third-party options, according to the SEC.
During this period, assets under management in the bank’s program strategies rose from approximately $10.5 billion in July 2017 to over $30 billion by October 2024. The SEC imposed a $45 million penalty on J.P. Morgan Securities.
The SEC further stated that JPMorgan’s brokerage unit made misleading disclosures to customers investing in certain private funds. Known as conduit funds, these pooled customer investments allocated to private equity or hedge funds that, in turn, invested in pre-IPO companies.
According to the SEC, a JPMorgan affiliate exercised discretion over when to sell shares and in what quantity, during which time the value of some shares declined significantly. As a result, the brokerage unit will pay $90 million to more than 1,500 conduit investor accounts, along with a $10 million civil penalty.
For J.P. Morgan Investment Management, the SEC found that the unit executed $4.3 billion in prohibited joint transactions, which benefited an affiliated foreign money market fund managed by the investment division as the delegated portfolio manager. The SEC imposed a $5 million civil penalty for these transactions.
The SEC also found that between July 2019 and March 2021, the investment management division engaged in several transactions generally prohibited to prevent undisclosed conflicts of interest, unless specific conditions are met or exemptive relief is provided.
In this case, a J.P. Morgan portfolio manager instructed an unaffiliated broker-dealer to buy short-term fixed-income securities from J.P. Morgan Securities, which J.P. Morgan Investment Management later purchased for a client.
These prohibited principal trades totaled approximately $8.2 billion, prompting the SEC to impose a $1 million civil penalty, noting that JPMorgan notified the SEC staff regarding the issue.
